How to buy a house with less than 20% Down?

How to Buy a House with Less than 20 Percent Down

When many people start the process of buying a house they assume putting 20 percent down is required. However, this is not the case and many lenders and mortgage brokers offer options for borrowers looking for mortgages that have a small down payment. Don Frommeyer, CRMS, President of NAMB (The Association of Mortgage Professionals), shares his advice for potential homeowners searching for mortgages with less than 20 percent down payment.

“There are a couple of things you’ll want to make sure you have before researching mortgages including solid credit standing and a steady income,” says Frommeyer. “The options are out there and exist to make sure that people have the ability to buy and invest in real estate, even in today’s competitive housing market and tight credit environment.”

Frommeyer suggests the following tips when buying a house with a low down payment:

- Maintain a Strong Credit Score: Credit score is one of the first things lenders look at when determining who is a qualified borrower. Make payments on time and keep in mind that even small mistakes may take some time to clear from credit scores.

- Look Beyond Your Local Banks: There are many options available outside of traditional bank mortgages. Mortgage Brokers offer a wide range of Mortgage loans with zero down payments, an example is VA Loans. Veterans of the military and qualified retired veterans are eligible to use this benefit for a 100 percent loan. They also offer FHA loans to qualified borrowers for as little as 3.5 percent down. And in rural areas the U.S. Department of Agriculture offers low down payment options with financing to 100 percent. A good Mortgage Broker will have all of these options available and will have a variety of lenders that they can put these through to stay competitive in the market. And even conventional loans have the ability to do loans with 5 percent down payment.

- Document Income and Assets: Lenders look for a steady income and sufficient savings to ensure borrowers can meet monthly payments. Make sure to have all account statements ready to establish proof of funds; lenders look for savings accounts that indicate the borrower will be able to cover a few months of payments. In addition, hold jobs for at least two years or within the same industry to demonstrate longevity and stability.

- Be Prepared to Pay More Monthly: When you do loans with limited funds down, most will require some sort of Mortgage Insurance to complete the loan. Conventional loans require Private Mortgage Insurance on loan to values above 80 percent. FHA loans have Mortgage Insurance on all of their loans and the VA only has a funding fee.

- Explore Options: Frommeyer suggests going to at least two lenders to be able to compare good-faith estimates. This allows you to look at two completely different options and this will help talking to more than one source when looking for a mortgage. Compare the fees, estimates, closing costs, etc. thoroughly before selecting any loan.